Table of Contents
SERIES 7 | SERIES 65 | FINANCIAL REGULATION COURSES
FINRA Rule 2060 — Use of Information Obtained in Fiduciary Capacity — provides in its entirety that a member who in the capacity of paying agent, transfer agent, trustee, or in any other similar capacity has received information as to the ownership of securities shall under no circumstances make use of such information for the purpose of soliciting purchases, sales, or exchanges except at the request of and on behalf of the issuer — establishing in a single declaratory sentence one of the most fundamental and most ancient principles of securities industry conduct: that information received in the course of serving in a fiduciary or quasi-fiduciary capacity belongs to the party whose interests that capacity is designed to serve, not to the member firm that receives it in the course of performing those services.
Rule 2060 was adopted into the Consolidated FINRA Rulebook through Regulatory Notice 09-72 — effective February 15, 2010 — from its predecessor NASD Rule 3120, which had governed the same conduct under the same operative principle for decades. The rule's migration from the 3000 supervision series to the 2000 duties and conflicts series under the consolidated rulebook reflects the correct understanding of its nature — Rule 2060 is not primarily a supervisory requirement but a conduct standard that defines a fundamental duty of loyalty applicable to members who occupy positions of trust in relation to securities issuers and their shareholders.
The rule's brevity should not be mistaken for insignificance. Rules that state foundational principles in a single clear sentence are often more difficult to circumvent than complex rules with multiple provisions and exceptions — the unequivocal prohibition under no circumstances admits of no interpretation that would permit the prohibited conduct regardless of the business justification offered. A member firm that serves as transfer agent for a corporation and receives a complete list of the corporation's shareholders — with their addresses, the sizes of their holdings, and their contact information — possesses information of extraordinary commercial value for its securities business. Rule 2060 exists to ensure that commercial value is never exploited.
Rule 2060 applies to members serving in four specifically named capacities — paying agent, transfer agent, and trustee — and in any other similar capacity. The enumeration is illustrative rather than exhaustive — the operative principle covers any role in which the member firm receives securities ownership information in the context of a relationship of trust and confidence with the issuer or its shareholders.
A paying agent is a broker-dealer or bank appointed by an issuer to make dividend payments, interest payments, or other distributions to the registered holders of the issuer's securities. The paying agent receives or accesses the complete list of registered holders and their holdings in order to calculate and disburse the appropriate payment to each — information that directly identifies every shareholder of the issuer, the size of each person's position, and in many cases their address and tax identification information.
A transfer agent is the entity appointed by an issuer to maintain the official register of the issuer's securities holders — recording transfers of ownership when shares are bought and sold, issuing new certificates when shares are transferred or new shares are issued, and cancelling old certificates when shares change hands. The transfer agent possesses the most comprehensive and current record of who owns the issuer's securities — information that is commercially valuable not only for securities solicitation purposes but also for proxy solicitation, tender offer tactics, and other corporate transactions.
A trustee in the context of Rule 2060 refers to a member firm serving as trustee of a bond indenture — holding the security interest securing a bond issue on behalf of the bondholders and maintaining records of bondholder identity and holdings. Bond indenture trustees receive detailed information about the bondholders whose interests they are obligated to protect — information that Rule 2060 prevents them from using for their own commercial solicitation purposes.
The phrase in any other similar capacity captures the full range of roles beyond these three named examples in which a member firm receives information about securities ownership as a consequence of serving in a trust-based relationship. Registrar functions, escrow agent roles, depository functions, and other similar service relationships all create the same information asymmetry that Rule 2060's prohibition is designed to address.
The prohibited conduct is the use of information received in a fiduciary capacity for the purpose of soliciting purchases, sales, or exchanges — directing sales efforts at the identified securities holders using the contact information and ownership details obtained in the course of the fiduciary service relationship.
The prohibition on soliciting purchases is the most direct application — a transfer agent member firm that uses shareholder lists to solicit existing shareholders to purchase additional shares, or to purchase different securities entirely, has misused its fiduciary information for commercial advantage in exactly the manner Rule 2060 prohibits. The shareholders whose information was obtained trusted the transfer agent to maintain their ownership records — they did not consent to having their identity and holdings used as a marketing database for the transfer agent's securities business.
The prohibition on soliciting sales is equally clear — a paying agent member firm that uses dividend payment records to identify shareholders of a company and then solicits them to sell their holdings — perhaps in connection with a tender offer or other transaction in which the member firm has an interest — has violated Rule 2060's prohibition on using fiduciary information for solicitation purposes.
The prohibition on soliciting exchanges covers the recommendation that shareholders exchange their current securities for different ones — a form of solicitation that redirects existing investment positions into transactions that benefit the member firm's securities business at the expense of the trust relationship that gave the firm access to the shareholder information.
Rule 2060 provides a single and narrowly defined exception to its absolute prohibition — the member may use fiduciary information to solicit purchases, sales, or exchanges when acting at the request of and on behalf of the issuer.
This exception reflects the legitimate and established practice of issuers directing their paying agents and transfer agents to communicate with shareholders — proxy solicitations, rights offering notifications, tender offer materials, and other issuer-directed communications that use the shareholder list maintained by the fiduciary agent are specifically authorised when they are made at the issuer's request and in the issuer's interest.
The dual requirement of request and on behalf of is critical — both conditions must be satisfied simultaneously. A member firm that decides on its own initiative to conduct a solicitation that it believes serves the issuer's interests — without the issuer's specific request — has not satisfied the exception. And a member firm that conducts a solicitation at the issuer's request but simultaneously serves its own commercial interests — such as soliciting shareholders to participate in a transaction through which the member firm will earn substantial fees — must carefully analyse whether it is truly acting on behalf of the issuer or on behalf of itself.
Rule 2060 includes an explicit cross-reference to FINRA Rule 2150 — which prohibits the improper use of customers' securities or funds and prohibits guarantees and sharing in accounts. The cross-reference signals the conceptual connection between the two rules — both address situations where a member firm misuses assets or information entrusted to it in a capacity that creates obligations of loyalty and fidelity.
Rule 2150 addresses the misuse of the assets themselves — the actual securities and funds belonging to customers that must not be used for the member firm's own benefit or for purposes the customer has not authorised. Rule 2060 addresses the misuse of information — the knowledge of ownership and contact details obtained in the course of servicing those assets, which must not be diverted to the member firm's own commercial solicitation purposes.
Together the two rules form a comprehensive framework for the member firm's obligations when it serves in roles of trust in relation to other parties' securities and the information associated with them — Rule 2150 protecting the assets themselves and Rule 2060 protecting the information about those assets and their owners.
Rule 2060 connects to the broader framework of FINRA rules governing conflicts of interest in the member firm's relationship with issuers and investors — operating alongside Rule 2262 governing disclosure of control relationships with issuers and Rule 2269 governing disclosure of participation in distributions.
In the modern securities industry the conflict between a member firm's fiduciary service roles and its commercial securities business roles has become more rather than less acute as large financial institutions have consolidated custody, transfer agent, paying agent, trustee, and broker-dealer functions under single corporate umbrellas with only information barriers separating the different businesses. The information barriers that member firms maintain between their fiduciary service departments and their securities sales and trading departments — required under the supervisory framework of FINRA Rule 3110 — are the practical mechanism through which Rule 2060's prohibition is implemented in the complex organisational structures of modern financial institutions.
FINRA Rule 2060 is tested on the Series 7 examination in the context of fiduciary duties, conflicts of interest, and the obligations of member firms when serving in trust-based capacities.
The key points to retain are these.
FINRA Rule 2060 — Use of Information Obtained in Fiduciary Capacity — prohibits member firms that receive information about securities ownership while serving as paying agent, transfer agent, trustee, or in any other similar fiduciary capacity from using that information to solicit purchases, sales, or exchanges of securities — under no circumstances — except at the request of and on behalf of the issuer.
The prohibition is absolute — the phrase under no circumstances admits no exception beyond the single authorised exception for issuer-directed solicitation. The rule applies to any similar capacity beyond the three specifically named roles — capturing any trust-based relationship through which a member firm obtains information about securities ownership. The single exception requires both conditions — the solicitation must be at the issuer's specific request and must be conducted on behalf of the issuer rather than for the member firm's own commercial interests.
Rule 2060 cross-references FINRA Rule 2150 — which prohibits improper use of customers' securities or funds — the two rules together protecting both the assets entrusted to member firms in fiduciary capacities and the information about those assets and their owners that fiduciary service relationships generate.
